Determine Book Profit
- Start with the net profit as shown in the profit and loss account prepared as per Schedule III of the Companies Act.
- Add back certain items like income-tax paid or payable, provisions for unascertained liabilities, and depreciation.
- Deduct specific items such as income exempt under Section 10 and withdrawals from reserves.
- The resulting figure is the “book profit” for MAT purposes.
- This adjusted book profit forms the base for MAT computation.
Apply the MAT Rate
- Multiply the book profit by the applicable MAT rate, which is currently 15% for domestic companies.
- For foreign companies without a permanent establishment, a 9% MAT rate may apply.
- This forms the basic MAT amount before surcharge and cess.
- The rate is fixed annually through the Finance Act and may vary.
- Companies must refer to the latest provisions each year.
Add Surcharge if Applicable
- A surcharge is added based on the total income of the company.
- 7% is added if the total income exceeds ₹1 crore but does not exceed ₹10 crore.
- 12% is added if the income exceeds ₹10 crore.
- Surcharge is calculated on the MAT amount, not on book profit.
- Ensures high-income companies pay proportionately more.
Include Health and Education Cess
- A 4% health and education cess is added on the total of MAT and surcharge.
- This cess is uniform across all levels of income.
- It is the final step in computing total MAT liability.
- Increases the effective MAT outgo slightly above the nominal rate.
- Must be included to avoid underreporting of tax liability.
Compare with Regular Tax Liability
- Calculate the company’s tax liability under normal provisions of the Income Tax Act.
- If this liability is lower than the MAT amount, the company must pay MAT.
- If the regular tax is higher, MAT provisions do not apply for that year.
- This ensures a minimum tax is always paid when profits are reported.
- Companies must maintain both calculations for compliance and audit purposes.
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